Financial condition of farmers and ranchers varies across the district

Results of the Minneapolis Fed's August 2001 agricultural credit survey.

Agricultural financial conditions were mixed across the district,
according to the results of the Minneapolis Fed's August 2001 agricultural
credit survey. Strong agricultural conditions were reported in the
Dakotas, while Montana producers faced drought. Meanwhile, dairy
country was faring well, while some areas of Minnesota reported
that poor weather conditions had affected crops.

Even with the range of conditions across the district, the overall
financial performance of the past three months is slightly ahead
of last quarter's survey.
Producers increased loan repayments and reduced loan extensions.
Overall household and capital spending increased slightly from last
quarter, and the proportion of farm customers at their debt limit
decreased from the second quarter. Meanwhile, interest rates were
down from last quarter, while land prices continued to increase.

Farm income and spending

Overall farm income and spending varied significantly across the
district. Seventy-one percent and 68 percent of North and South
Dakota survey respondents reported average to above-average farm
income, respectively. "With calf prices being forward contracted
at $1 to $1.10, the economy in South Dakota will be strong," said
one South Dakota lender. Meanwhile, 44 percent of Minnesota and
29 percent of Montana lenders reported average to above-average
farm income respectively. "Severe drought in our area has caused
large production losses in wheat and alfalfa. Also, pasture conditions
are poor and cattle producers are going to need to purchase higher
priced hay for the winter," said a Montana banker. Chart

Overall farm household spending was stable, as 76 percent of lenders
saw average or above-average household spending in the current period.
However, 91 percent of South Dakota lenders reported average or
above-average household spending compared to 57 percent of Montana
lenders. Capital spending remained depressed as only 48 percent
of respondents indicated average or above-average capital spending
this quarter. Only 29 percent of Montana lenders indicated average
or above-average capital spending, compared to 68 percent of South
Dakota lenders. Chart

Agricultural Credit Conditions Survey
Third Quarter 2001

Percent of respondents who reported below normal
levels for the past three months

MN

MT

ND

SD

Ninth District

Rate of loan repayments

20

29

7

9

14

Net farm income

56

71

29

32

45

Farm household spending

28

43

21

9

24

Farm capital spending

64

71

50

32

52

Machinery loans

48

67

43

36

44

Percent of respondents who reported above normal
levels for the past three months

MN

MT

ND

SD

Ninth District

Loan renewals or extensions

20

33

7

14

16

Referrals to other lenders

13



8

5

7

Amount of collateral required

12

17

14

23

16

Operating loans (excludes feeder loans)

36



29

27

27

Note: Wisconsin is omitted from this
report due to the small number of survey respondents. The
Upper Peninsula of Michigan is not part of the survey.

Farm loan volumes

Demand for loans remained at normal levels. Livestock and other
operating loan volumes were about average over the last three months,
as 71 percent and 65 percent of lenders, respectively, reported
normal loan demand. Machinery loans and other intermediate-term
loans were about average, as 53 percent and 62 percent of lenders,
respectively, noted normal loan activity in these two areas. In
addition, half the lenders indicated normal real estate loan volumes.

Agricultural Loan
Volumes

Feeder Livestock

Operating

Machinery

Real Estate

Significantly higher than normal

0 %

3 %

0 %

1 %

Somewhat higher than normal

3 %

24 %

3 %

11 %

Normal

71 %

65 %

53 %

50 %

Significantly lower than normal

16 %

8 %

34 %

29 %

Somewhat lower than normal

10 %

0 %

10 %

9 %

Percent of respondents, third quarter
2001.

Bank credit conditions and liquidity

Bank credit conditions and liquidity improved from last quarter.
Normal levels of loan repayments were described by 79 percent of
lenders, an 11 percentage point increase from last quarter's survey.
Normal levels of renewals and extensions were noted as 73 percent
of respondents indicated average levels, compared with 68 percent
in the second quarter of 2001. "Milk income is strong, which is
[the] complete opposite of one year ago. This has led to more rapid
repayment of loans and less operating money borrowed," commented
a Wisconsin lender. The percentage of farmers at their debt limit
edged down to 28 percent compared with 29 percent last quarter.
Availability of funds did not seem to be a problem: Only 6 percent
of lenders reported refusing to make a loan due to shortage of funds.

Bank Credit Conditions

Available Funds

Loan Repayment

Significantly higher than normal

11 %

0 %

Somewhat higher than normal

14 %

7 %

Normal

60 %

79 %

Significantly lower than normal

14 %

13 %

Somewhat lower than normal

1 %

1 %

Percent of respondents,
third quarter 2001.

Land values, collateral and interest rates

Cropland prices increased over last fall's prices from an average
of 1 percent in North Dakota to 8 percent in Montana and South Dakota.
In addition, pasture land price increases ranged from an average
of 1 percent in North Dakota to 8 percent in South Dakota over those
of a year ago. Collateral levels remained normal, as 84 percent
of lenders noted average levels of required collateral. Meanwhile,
interest rates for farm loans have decreased over 100 basis points
from a year ago.

Outlook

Nearly two-thirds of lenders expected average to above-average
farm income during the next three months. "New crop potential is
excellent. Record yields will again be expected this year," said
a South Dakota banker. However, this varied significantly across
the district as 86 percent and 77 percent of North and South Dakota
lenders, respectively, expected normal to above-normal profit levels
compared to about 43 percent of Minnesota and Montana bankers. The
outlook for capital spending was nearly the same: 58 percent of
lenders anticipated normal to above-normal levels with similar variability
across the district states.

Fixed Interest Rates *

Feeder Livestock

Operating

Machinery

Real Estate

3rd Q '00

10.4

10.5

10.3

9.7

4th Q '00

10.3

10.4

10.3

9.6

1st Q '01

9.8

9.8

9.7

9.1

2nd Q '01

9.2

9.3

9.2

8.6

3rd Q '01

8.6

8.9

9.0

8.5

* Average of reported
rates in mid-August 2001.

Facts about the survey

Each quarter, the Federal Reserve Bank of Minneapolis surveys agricultural
bankers in the Ninth Federal Reserve District, which includes Montana,
North Dakota, South Dakota, Minnesota, northwestern Wisconsin and the
Upper Peninsula of Michigan. In mid-August, 71 bankers responded regarding
conditions during the third quarter 2001.